Can I incorporate audio into my output avi render?
That's perfectly fine. This Button Audio does, what it says, it "Mixes the scene's audio to a sound file". It does mix down actually all Audio Strips into one which you have placed inside the set Frame Range in the VSE.



When you want to render out a Video File, you have to hit the Animation Button. It will render out your active "Scene".



Though in the Post Processing Panel you can check (which is by default) to process everything through the VSE. This is obligatory for the Audio MixDown as there is the only place to import Audio Files (or Movie Files containing one Audio Strip). These will be used during your Playback as well.



When you want to have a Video file as output with sound, you have to use the Animation Button while having an Audio Strip placed as described above and having your File Format set to a Movie Option (like H.264).



AND very important: you have to choose an Audio Codec in the Encoding Panel which comes available once you choose a Movie File Format like AAC or MP3.



This is set to None by default which would result in a Video file without sound even though you placed one in the VSE properly when hitting the magical Animation Button (Ctrl F12).